Beyond Paycheck to Paycheck

at January 5, 2009 in Tax. 1 Comment

You may recall that at the outset of the financial crisis, a time that now seems relatively calm, Congress provided for an Economic Stimulus Payment. Many married couples and single individuals received $1,200 and $600, respectively, as a result of this program. Although there has been talk for months about a second stimulus payment nothing yet has passed.

However, recovery rebate credits are already in place.

You: What are those?

The Recovery Rebate Credit exists to allow those who didn’t qualify to receive the maximum Economic Stimulus Payment in 2008 a second shot at the federal government’s coffers in 2009.

Frequently Asked Questions about the Recovery Rebate Credit (RRC)

You: Who gets the RRC?

Basically, only people who fall into one or more of the following categories are eligible for the RRC:

Your income dropped from 2007 to 2008 so that you now qualify for a larger payment
You had more eligible children at the end of 2008 than you did at the end of 2007
You could have been claimed as a dependent in 2007 but could not for 2008

You: How do I get the money?

Unlike last year’s economic stimulus payment, the RRC will not be paid via a separate check. Instead, the amount of the RRC will increase your 2008 income tax refund (or decrease the amount you owe). You simply enter the amount on line 70 of Form 1040, should you qualify.

You: How much will I get?

A calculator is being created by the IRS to help with this calculation and will be available in February, 2009.

# # #

Anyone else out there expecting a payment - why? Birth/adoption of a child or is there a silver lining in a lower income year?

Is anybody still waiting to receive their stimulus payment from last year? What’s the latest “they’ve” told you?

"financial education"

The post-six figure salary world

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at January 2, 2009 in General Financial Planning. 0 Comments

I just finished reading Life after a six-figure salary at CNNMoney.com. The article highlights two examples of the plight of the numerous recently laid off workers. Specifically, how in this very difficult job market job applicants face stiff competition from other unemployed workers, lengthening the time out of work. Even if an offer is to come, people find little wiggle room in salary negotiations and are accepting a LOT less just to get some income flowing to them.

Shaun Chedister, 30, is one of those people. Chedister was laid off from his job at Washington Mutual at the end of last year. After eight months of actively looking for work to help support his wife and four children, he accepted an offer from Ernst & Young even though the new position as an executive administrator paid less than half of what he was making before.

Needless to say, everything for Chedister and his family changes.

But the adjustment to making $66,000 a year from $125,000 has been hard. “For the last four to five years I’d been making six figures,” Chedister said. “My lifestyle had been at a certain level.”

While Chesiter is happy to be employed, he and his family have backtracked and will continue to go backwards in how they live from their housing to their cars to their dining choices.

If you’re employed in this economy, you may still, like the others before you, become one who loses his job through no fault of his own. I believe in personal accountability, but when your entire industry implodes or your company vaporizes overnight, it’s hard to argue you should have seen that particular event on the horizon

To those still employed: you’ve been warned. Do more than read. Listen. Take action.

Job loss can happen to you. If it does, a significant paycut may be your only immediate option. What can you do to prepare? For starters, live beneath your means. Ideally, way below. Build your emergency fund. How big? If you suffer a job loss, you won’t be disappointed to have “too much” money set aside for an emergency.

One of my friends recently lost his job and isn’t worried. Sure, he wants to get back to work as soon as possible. But he knows he can last a very long time without income because of the financial discipline he and his family put into place while he was still working. He can afford to be selective, at least in the short-term. Save like him and you’ll also have options if, one day, you get pink-slipped.

Twice in my life I’ve taken 100% pay cuts. Once to go to graduate school and again to start Total Candor from scratch. Both times the impact could have been brutal to my lifestyle, but each cut was a non-event. My wife and I have always lived a certain way, so our lifestyle didn’t need to be cut that much as a result of the whole non-salary thing. But even when our incomes came back, we still didn’t significantly change our lifestyles. We live how we live and we’re happy.

What have you done to prepare for the remote but growing possibility you incur an involuntary temporary 100% pay cut? If the question becomes more than hypothetical, will it be enough?

"financial education"

Smart Financial Moves: 2008 in Review

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at December 29, 2008 in Balance, Cash Flow and General Financial Planning. 1 Comment

I hope you are enjoying the holidays. Now that we’re in late December, a 2008 recap seems appropriate. Financially speaking, these were my top four financial moves of the last 12 months:

Not buying a house. Although home prices have fallen in our area, prices have only retreated to 2004 levels according to most local reports. Unless you purchased in 2006, this is hardly a major correction. Furthermore, home prices are still expensive by historical measures (e.g., ratio of sales price to rent, affordability based on median income, etc.). As such, I believe (but cannot guarantee) that home prices will continue to fall for the near future. Yet when we do buy, we expect to stick around for a while. Add that to the size of my growing family and we just might purchase before the 2010 expected bottom. Still, not buying a home during 2008 is my top financial move.
Visiting Boston during an ice storm - Like most New Hampshire residents, we lost power for at least two days earlier this month due to an ice storm. No way we were going to ride it out at home when the inside temperatures were expected to (and did) reach the thirties - we have an infant! So we planned on heading to a hotel 20 minutes away. Then my wife and I chatted: Why not make lemonade out of lemons? If we’re forced to use all these hotel points (I travel a lot for work), why not go somewhere fun? So off to Boston we went. Now we have family memories of being tourists in Boston (riding the subway, going to the Aquarium, pressing buttons to go up and down on the elevator) with two little kids instead of hanging out in the confines of a breakfast nook in Dover, NH waiting for the lights to come on back home.
Not selling any investments as a reaction to the financial crisis - Other than a swap of very similar mutual funds for tax purposes two weeks ago, we made no changes to our investments this year. Yes, we got pummeled in the market like everyone else. Yet we’re adding to our stock market investments at this fairly low point in the market. I can afford the risk as a thirty-something, knowing I have decades until retirement. Still, stomaching the downturn without selling impulsively was a top 2008 financial move.
Buying tickets to two Red Sox playoff games - Admittedly this might not have made the list had the Sox been blown out twice instead of rallying, in the bottom of the 9th, to win both playoff games I attended. This financial move serves as a reminder that money is only a tool to bring you things and experiences you desire. Money is not a thing or experience in itself. Some people would scoff at spending $150 (twice) on a ticket to a baseball game. They should. But I underpaid; each ticket was worth far more to me. Since I prioritize my spending (and limit or even eliminate it on things I don’t truly value), I can afford the rare extravagance of a $150 ticket. As a result, I have memories that will last my lifetime. I can see it now: “Yes, grandson, I was at that game when the Red Sox came back from 7-0 with two outs in the seventh . . .”

# # #

What were your best financial moves of 2008?

"financial education"

When you spend less, you get more value out of life

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at December 24, 2008 in Balance, Cash Flow and Saving Strategies. 0 Comments

We received over a foot of snow last Sunday. This was on top of another foot that had finished falling less than 24 hours previously. Needless to say, it was a day that the entire family (save for my shoveling excursions) stayed inside. It could have been boring.

It wasn’t.

In fact, at the end of the day, my wife and I agreed that we would remember one thing that we had done together far longer than we’d remember the crazy snowstorm or our last dinner out with just the two of us (which has been so long I think I’ve already forgotten it).

You: What did you guys do?

We made a memory, by making dinner together. All of us.

You: Isn’t your youngest kid an infant?

Technically, yes. We made her supervisor and she monitored the situation from her high chair. But my wife, older daughter, and I made dinner, assembly line fashion with calming but festive music playing in the background.

You: iPod sound system?

No, a boombox from 1991 that still works. See, the stereo is meaningless. So was the fact that dinner’s ingredients cost less than $20 and fed us all (thanks to leftovers) for two nights. The memory was from the camaraderie and the genuine closeness of enjoyable family time, not family money.

It was the second time something like that happened in a week.

You: Something like what?

That, by spending less, I was getting far more value.

Last week, my wife and I went out to lunch. We met in the middle of the day and had lunch together.

You: I don’t need a definition of “lunch.”

True, for most people, meeting someone for lunch is routine. However, my wife and I both run small businesses so we don’t often have the time. But we decided to make the time last Thursday.

I could tell you that our little lunch rendez vous was so enjoyable because we meet for lunch very often. That would be true. I could say, as I did above, that the reason we don’t meet very often is because we’re both very busy. But the truth is that we don’t go out to lunch not only because of our schedules, but also because eating out is an easily avoidable expense. Therefore, we almost always bring our lunches.

But we had such a nice time. So, I think I’m going to suggest to the Mrs. that we meet for lunch more often.

You: Increasing your spending.

For sure, but not be nearly as much as the value we received from a $10, combined, lunch.

You: That’s really cheap.

True. We also had a coupon so it won’t be that inexpensive each time. But again, it wasn’t the cost we were focused on. It was each other. When you’re focused on spending time, not spending money, you get a lot more value for your dollar.

Extra bonus: you live in balance.

What do you do for top value?

"financial education"

Quickly, with Feeling

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at December 22, 2008 in Uncategorized. 0 Comments

Just about to step into an interview with the Boston NBC affiliate (will air in early 2009) so quickly sharing this week’s Carnival of Personal Finance, featuring my article Year-End Financial Planning Tips including 401(k) Matching Contributions.

In the spirit of “we’re all crazy-busy,” the best article of the week is a passionate explanation of one woman’s experience and internal debate about working outside the home while raising children. Everyone comes to their own conclusion, often privately, on this issue and it’s great to see it talked about so frankly:
A Mother’s Struggle Between Work And Kids

# # #

You: How much did you shovel this weekend?

Two and a half-feet; 3 hours all told. How much did you shovel over the weekend? You can answer in time or inches.

"financial education"

Spending on a calendar?

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at December 19, 2008 in Uncategorized. 1 Comment

Did you notice that you’re on the last page of your calendar?

You: Yup.

Have you noticed the calendar shops popping up inside malls and bookstores?

You: I have.

Me too. I don’t understand calendars though.

You: Oh, I can totally explain that to you. You see, there’s 12 months in a year –

No, I get what a calendar is. I just don’t get the point.

You: The point is that you can schedule things. So, when your friend says let’s plan on doing that next April 26, you have a fundamental agreement as to when that actually is! Without calendars–

I had no idea you had such passion about calendars.

You: Me neither, actually.

What I really don’t get is these calendar shops. Why pay full retail? I mean we all know that these calendars have a finite shelf-life of –

You: Exactly 12 months.

Not even.

You: Don’t tell me I need to go through the whole definition of a calendar thing again?!

Of course not. While a calendar clearly has 12 months, right now a 2009 calendar has a shelf-life that is a lot shorter than that. Would you even consider buying a 2009 calendar next, say, April 26?

You: No.

That’s my point. In fact, come mid-January, no one will be shopping for calendars and those that are still for sale will retail for 50% off or more.

So, that’s when I will buy my 2009 calendar. When will you buy yours?

# # #

Why spend more for the same thing? Rememeber, to save it isn’t about beign cheap: it’s about being fiscally responsible. This is just one example. There are many more saving strategies.

"financial education"

Credit Card Humor

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at December 18, 2008 in Debt management and Ranting. 3 Comments

As Andy Rooney might say “Do you ever wonder why it cashiers ask you to sign for most credit card transactions? They never actually do anything with those slips of paper except file them somewhere, do they? It’s not like there’s an army of Martians comparing the signatures to anything on file somewhere. So why bother?”

Apparently, someone did has wondered and has apparently done some market research to see how absurd his signatures could be before anyone raised a concern. Disclosure: I did not vet this to see if it is for real, but I can tell you that I totally buy that someone could absolutely do what this guy did. Plus, it’s laugh out loud funny. Yes, Zeus has shopped at Trader Joe’s.

Enjoy The Credit Card Prank.

"financial education"

Year-End Financial Planning Tip #5: Where Are You?

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at December 15, 2008 in Uncategorized. 0 Comments

Today’s the final year-end post. Earlier posts on this topic include using your FSA funds before losing them, maximizing your match in December, taking tax advantage of any capital losses, and year-end IRA considerations.

So where are you?

You: Me?

Yes.

You: I’m right here.

No, I know that. I mean where are you financially?

You: I was hoping you could tell me.

I get that a lot, and I do look forward to meeting you one day either at an upcoming seminar or through a Total Candor membership program. But you need to take the first step yourself.

Many people find the period at the end of December, particularly after Christmas and before New Year’s to be comparatively slower than the rest of the year. Coincidentally, New Year’s resolutions are made around that time and typically refer to actions we intend to take in January. Then January comes around and, with it, a pick-up in the schedule causing many of the things we’d hoped to get done to once again fall off the radar screen.

I have a proposal.

Instead of taking the time to come up with resolutions in late December that will be gone by late January, use that time, perhaps an hour or two, to review your personal finances. Ask yourself the following questions:

What are my near-term financial goals?
- Real emergency fund?
- New house?
- New car?
- No credit car debt?
What about long-term goals?
- Greater security for retirement?
- Funding for children’s education?
What have I saved?
- Where is it?
- What is it invested in?
- Should it be?
- Is it enough?
- Am I comfortable/thrilled/upset that this is what I have saved given my annual income and age?
What do I owe?
- To whom?
- Was it worth it?
- What’s the interest rate?

You get the idea.

You: You said an hour or two. This seems like a lot more work than that.

It’s not. Trust me. Fixing problems might take longer than an hour or two, but understanding your situation, for real, won’t take very long at all.

You’ll never improve your financial lot in life if you don’t even know where you are starting from.

Personally, I think the end of the year is the best place to begin. Your thoughts?

"financial education"

Year-End Financial Planning Tip #4: IRA Planning Now

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at December 11, 2008 in Retirement and Tax. 0 Comments

Year-end obsessive man is here again. Previously, I wrote of the importance of using your FSA funds before losing them, maximizing your match in December and taking tax advantage of any capital losses. Today, is tip # 4 and concerns IRAs.

Don’t wait until April 15, 2009 to make your 2008 IRA contribution.

Certainly, don’t wait until April 15, 2009 to figure out where your 2008 IRA contribution money is coming from.

Whether with finances or a birthday party, when you wait to the last minute, things typically don’t go as well as you had hoped (or as if you had planned). By saving between now and next April in your IRA two good things happen:

You’ll probably increase the total amount you’re able to save because it’s not just the amount you can come up with at the deadline.

You’ll begin to take advantage of tax-deferred growth sooner and for longer.

Don’t wait. Also, remember: if you miss making your entire 2008 IRA contribution by April 15, 2009, you can’t make it up later.

Check out the 2008 and 2009 IRA limits. Disclosure: I wrote it.

"financial education"

Can you predict the future?

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at December 10, 2008 in Uncategorized. 2 Comments

I particularly enjoyed Why Investing in Stocks This Year Was Not a Financial Mistake, a posting in this week’s Carnival of Personal Finance. Money Ning’s post gets right to the heart of the issue for anyone who lost money in the stock market in 2008 (Yes, this roughly translates to the entire population of worldwide investors.): While this was a terrible year for investments, your decision to participate doesn’t mean you made a mistake.

If, like Money Ning, you had a long-term time horizon from which to recover from a poor year and, correspondingly, had a meaningful understanding and acceptance of the inherent risk involved with investing, then you made the right call.

You: How can “making the right call” mean losing 40% of my 401(k) balance?

Because, again as Money Ning explains, you only have the information available to you at the time you make the decision. No one knows what the market is going to do going forward. Risk works both ways, as we’ve all learned/remembered this year. Investing is a long-term game, not an annual one, and 2008 - thankfully - ends in about three weeks.

You: And what will 2009 bring?

I have no idea. Neither does anyone else. So invest according to your time horizon and risk tolerance, not someone’s thoughts on the market’s short-term performance.